Ponzi schemer charged with insider trading

Published March 24, 2011

| Reuters

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March 24, 2011 – MIAMI (Reuters) - Barry Minkow, an audacious former Ponzi scheme swindler who claimed to have cleaned up his act, was charged on Thursday with insider trading in shares of Miami-based Lennar Corp <LEN.N>, a leading U.S. homebuilder.

The charge stems from materially false and damaging allegations about Lennar that Minkow made in January 2009, which drove its stock price down as much as 30 percent over two days, authorities said.

A complaint filed in U.S. District Court for the Southern District of Florida said Minkow had been hired by a fellow conspirator to make "false and misleading statements about Lennar."

The conspirator was not identified in court papers. But Lennar attorney Daniel Petrocelli identified the suspect as Nicolas Marsch, a California builder.

Minkow was hired to artificially depress Lennar's stock price because the conspirator claimed Lennar owed him "a substantial sum of money as a result of a failed business deal," prosecutors said.

Minkow, who served seven years in prison after his conviction in a notorious stock fraud case in 1988, claimed to have reformed over the years and had gone on to work with the FBI and other law enforcement agencies to build cases against white-collar criminals.

But he abused that working relationship and trust by prompting authorities to open a criminal probe into Lennar and used his inside knowledge of the probe to trade in Lennar securities for his personal benefit after their price had tumbled, Thursday's complaint said.

"DECEIPT AND ABUSE"

"Minkow's manipulation of the market and his relationship with the FBI for his personal gain caused a severe drop in the stock prices of a large local corporation," U.S. Attorney Wilfredo Ferrer said in a statement. "This type of deceit and abuse of trust will not be tolerated."

Minkow, now 44, grabbed the public spotlight in 1988 when he was convicted of swindling investors out of tens of millions of dollars in a Ponzi scheme case involving his carpet-cleaning business. He founded the business, ZZZZ Best Carpet Cleaning, when he was just 16 and was once hailed as a boy wonder of Wall Street.

Alvin Entin, Minkow's lead attorney, told Reuters his client agreed to enter a guilty plea based on the charges against him. He faces up to five years in prison.

Additional details were not immediately available and a lawyer for Marsch did not return phone calls or emails seeking comment. But Lennar Chief Executive Officer Stuart Miller welcomed the move against Minkow.

"The criminal activity described in the government filing has been a continuing assault on our company for several years," Miller said in a statement.

"We are pleased that the government is pursuing the responsible parties. We intend to cooperate fully with the government's ongoing investigation."